'KYC Norms Meant to Safeguard Banks from Fraud'

HYDERABAD: In the wake of rising security concerns banks should be vigilant about anit-social elements and terrorists using the banking system, said R Gandhi, Deputy Governor, Reserve Bank of India (RBI).

Delivering a lecture on ‘Know Your Customer: A Balance Between Compliance and Convenience’, organised by Fappci here on Friday, Gandhi said that the RBI is constantly working to minimise cost and inconveience for all stakeholders.

He said that while banks need to monitor customer transactions to prevent potential fraud, customers should comply with the Know Your Customer (KYC) norms in order to mitigate risk.

“No security comes free of cost or inconvenience...RBI is committed to ease of operations by bank customers, while requiring the banks to be vigilant about nefarious designs of anti-social elements and terrorists to use the banking and financial systems,” he said.

According to Gandhi, issues such as illegal/black money and more recently, terrorism financing became matters of serious concern. “Sound KYC policies and procedures were critical for protecting the safety and soundness of banks and the integrity of banking system in the country,” he said.

Stating that the RBI had moved away from introduction-based KYC to document-based evidence, Gandhi said, simpler KYC norms were put in place for smaller accounts to facilitate financial inclusion.

“The focus earlier was more on the asset side and not on the liability side as no banker could risk parting with his funds to an unknown person,” Gandhi said.

With the elaborate KYC norms, which insist on proper documentation posing as a challenge for promoting financial inclusion, Gandhi said, the central bank had put in place measures like the Aadhaar-enabled payment system that allows customers to carry out a financial transaction on a micro-ATM provided by the banking correspondent.

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